Analysis: Japan's new cabinet likely to be long on loyalty, short on reform

Shinzo Abe, Japan's incoming prime minister and the leader of Liberal Democratic Party (LDP), walks past his portrait after attending a meeting at the LDP headquarters in Tokyo December 21, 2012. REUTERS/Toru Hanai

TOKYO (Reuters) - Incoming Japanese Prime Minister Shinzo Abe’s cabinet looks likely to be heavy on close allies, with a few party rivals added to fend off criticism of cronyism, but few see signs that the line-up will produce creative reform policies.

Abe, who will be voted in as prime minister on Wednesday following his conservative Liberal Democratic Party’s (LDP) sweeping election win, has made clear his top priority is to slay deflation with a huge dose of monetary easing and spending.

To assist with that task, the 58-year-old Abe, who served as premier from 2006-2007, will tap former prime minister Taro Aso as finance minister and ex-trade minister Akira Amari for a new “Economic Revival” portfolio, Japanese media reported this week.

Both are close allies who share Abe’s affection for reflationary policies, including heavy pressure on the Bank of Japan to take more drastic action to beat deflation.

Bowing to such pressure, the central bank on Thursday delivered its third shot of monetary stimulus in four months and signaled it might set a higher inflation target at its January meeting [ID:nL4N09U0BL].

“It’s deja vu all over again,” said Brad Glosserman, executive director of the Honolulu-based Pacific Forum CSIS think tank. “He (Abe) is a real Japanese economic traditionalist - inflate the economy to try to get growth but don’t try anything that will upset the proverbial apple cart.”

Among the changes Abe is not expected to tackle swiftly, if at all, are deregulation of sectors such as child-care, medical care, the labor market and agriculture, and participation in a U.S.-led trade pact. Vital reform of the creaking social welfare system is likely to be put off at least until after a July election for parliament’s upper house.

Loyal Abe backer Yoshihide Suga is expected to become chief cabinet secretary, a key post combining the job of top government spokesman with coordinating among ministries.

Others who share Abe’s agenda to revise the pacifist constitution and rewrite Japan’s wartime history with a less apologetic tone have also been floated for posts. Abe may, however, put contentious issues that could upset China and South Korea on the backburner to concentrate on the economy.

“He’s not dumb. He has learned the obvious lesson that he has to pay attention to the economy first,” Glosserman said. “He can’t afford a crazy conservative jihad because he knows the public is not behind him.”

“TEAM ABE”

Sensitive to criticism that his first administration was loaded with chums rather than competent ministers, Abe is also expected to pick rivals and some elders to season his lineup, domestic media said.

Among the names floated are former LDP leader Sadakazu Tanigaki, 67, a softspoken fiscal conservative whom Abe replaced in September; Yoshimasa Hayashi, 51, a former defense minister and economic policy expert; and Nobuteru Ishihara, 55, a former LDP No. 2. The latter two lost to Abe in the September leadership race. Though political rivals to Abe, none of the three have reputations as proponents of bold structural reforms.

Abe ended his first term as prime minister by abruptly quitting in 2007 after a troubled year plagued by scandals in his cabinet, public outrage over lost pension records and the LDP’s big defeat in an election for parliament’s upper house. He later cited ill health as the reason for resigning.

“Hopefully, he’s learned his lesson and ‘Team Abe’ will be better than last time,” said Jeffrey Kingston, director of Asian studies at Temple University’s Japan campus. “He’s got a deep hole to climb out of and the LDP is reverting to form.”

Abe has also said he would revive the Council on Economic and Fiscal Policy (CEFP), a government advisory body that had lain dormant under the outgoing Democratic Party of Japan (DPJ). Maverick LDP Prime Minister Junichiro Koizumi used the body to push through a privatization and deregulation agenda during his 2001-2006 term, but so far the focus this time has been on a revived CEFP as a venue for the government to pressure the BOJ.

Under Abe, the LDP back-pedaled on Koizumi-style reform. One of Abe’s early moves as premier in 2006 was to welcome back to the party defectors who had rebelled against Koizumi’s pet project of postal system privatization.

Signs of appetite for deregulation and structural reform now are few. A Kyodo news agency survey showed that more than 84 percent of LDP lawmakers elected on Sunday opposed Japan joining a U.S.-led trade pact, the Trans-Pacific Partnership (TPP).

“If you look at the seats (in parliament), 40 percent are urban and 60 percent are non-urban. Are we really going forward with TPP or economic reform? That’s not so easy,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo. “The question is whether Abe will have the fortitude and guts and energy and bull-headedness to push through (reforms).”